Trade Adjustment Costs in Developing Countries: - World Bank ...

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Openness and Export Dynamics: New research directions 287*Based on Eaton et al. (2009)Figure 18.2: New Cohort Maturation*export sales than other cohort members, and as they expand, they do so both byincreasing sales per buyer and by increasing the number of buyers they ship toin the US market (not pictured). 4Several theories are available for these findings, and for related earlier resultsbased on 6–digit product-level trade flows (Besedes and Prusa, 2006). One wasdeveloped by Rauch and Watson (2003) before these patterns were documented.These authors model the behavior of developed-country buyers who engage incostly search for developing-country suppliers. Suppliers are heterogeneous interms of their productivity and their capabilities to deliver specialized products,but only their productivity is costlessly observable. When a buyer meets a seller,they can either invest in training them to produce the desired product and placea major order immediately, or they can place a small trial order and thereby learnabout the seller’s capabilities, deciding afterward whether to reject them or investin training them. The former strategy can lead to rapid order fulfillment, but itcan also lead to investments in sellers who are incapable of delivering. The latterstrategy reduces risk, but it is costly because it takes time to discover a seller’scapabilities through trial orders. In equilibrium, buyers immediately reject sellerswith low productivity; they place small trial orders with sellers who havemoderate productivity (then either train or reject them when their capabilitiesare revealed), and they immediately invest in training sellers with high productivity.The Rauch–Watson characterization of international buyer–seller matching accountsfor several patterns in the shipments data that are inconsistent with the4 These statements are based on Eaton et al. (2009), who use US customs records to keep track ofthe identification of exporters and importers for shipments from Colombia to the US
288James Tyboutsimple sunk cost model. In particular it explains why (1) many exporters shipsmall amounts and then exit the destination market, (2) sellers who start withlarger export volumes are more likely to remain in the export market, and (3) onaverage, the successful members of each cohort experience rapid export growthafter their first year. However, the Rauch–Watson idea has some limitations. Ittreats suppliers as passive agents who do not search for buyers, and it does notaccount for the fact that buyers use multiple suppliers.Arkolakis (2008a; 2008b) shifts the search process from buyers to sellers in hisinterpretation of the stylized facts mentioned above. More precisely, he arguesthat exporters can easily find a few customers in a destination market, but afterthe low-hanging fruit has been picked they must ferret out after increasinglyhard-to-find buyers. Thus the costs of building a clientele rise more than proportionatelywith export sales. This characterization of marketing costs meansthat non-exporting firms who experience favorable productivity shocks shouldfind it easy to establish a toehold in foreign markets, counter to the standardsunk cost specification. But the more market inroads these new exporters make,the tougher shedding becomes, and the more their growth rates slow down. Byassuming that exporters’ productivity shocks follow a Brownian motion, Arkolakis(date) is able to explain the large volume of short-lived, small-scale exportingepisodes, the surge in shipments among a small set of successful newexporters, and the growth slowdown as firms’ exporting relationships mature.Eaton et al. (2009) also develop a model in which sellers search for buyers, butthey add seller-side learning. As in Arkolakis’s models, costs are convex in searchintensity. However, each time an exporter meets a buyer, the seller receives anoisy signal about their product’s appeal to consumers in the destination market.A large order from a new buyer signals that the product is likely to be popularwith others, while a small order signals the opposite. Each time a match is madeand a signal is conveyed, the exporter updates their priors concerning the product’sappeal and adjusts their search intensity. Early signals are the most informative,so they result in the largest adjustments in search intensity. Matchesbetween buyers and sellers endure from one period to the next, subject to an exogenoushazard of separation.More formally, Eaton et al. (date) assume that firm j is able to discover new buyersat the rate λ j when it spends c(λ j ) on search activities, and that its existingmatches break up at some exogenous rate. Further, they assume that j’s expectedprofit stream from its next match can be written as, where e t isthe real effective exchange rate, ϕ jt is j’s current productivity, and and arethe mean and standard deviation of the posterior distribution that summarizes j’sbeliefs about its product’s appeal after it has experienced n matches. 5 These beliefsare based on a standard Bayesian updating process which in turn reflects thesize of the orders that have been placed by buyers whom seller j has previously5 The expected profit stream is related to single period export profits by the matchseparation hazard, the Markov processes for exogenous state variables, and the Bayesian updatingrule.
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THE WORLD BANKTrade Adjustment Cost
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Trade Adjustment Costs in Developin
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Trade Adjustment Costsin Developing
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viiiContents10. Trade Adjustment an
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List of Tables2.1 Simulated Adjustm
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List of Figures2.1 Worker Flows 262
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PrefaceThe process of globalization
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2Bernard Hoekman and Guido Portopri
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4Bernard Hoekman and Guido Portoequ
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6Bernard Hoekman and Guido Portowou
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8Bernard Hoekman and Guido Portoass
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10Bernard Hoekman and Guido Portoco
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12Bernard Hoekman and Guido PortoJa
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14Bernard Hoekman and Guido Portoma
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16Bernard Hoekman and Guido Portoju
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18Bernard Hoekman and Guido Portoat
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20Bernard Hoekman and Guido PortoRE
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PART AADJUSTMENT COSTS
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26Carl Davidson and Steven Matusz2.
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28Carl Davidson and Steven Matuszne
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30Carl Davidson and Steven Matuszwh
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32Carl Davidson and Steven MatuszTa
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34Carl Davidson and Steven MatuszSo
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36Carl Davidson and Steven MatuszHi
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38Erhan Artuç and John McLarenof i
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40Erhan Artuç and John McLarenshoc
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42Erhan Artuç and John McLaren1.3
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44Erhan Artuç and John McLarenassu
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46Erhan Artuç and John McLarenin A
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48Erhan Artuç and John McLarenavai
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50Erhan Artuç and John McLarencomp
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52Erhan Artuç and John McLarenFigu
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4Reallocation and Adjustment in the
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Reallocation and Adjustment in the
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5Trade Reforms in Natural-Resource-
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Trade Reforms in Natural-Resource-A
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90Olivier Cadot, Laure Dutoit and M
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100Olivier Cadot, Laure Dutoit and
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7Trade Reform, Employment Allocatio
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Trade Reform, Employment Allocation
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144Gordon H HansonOn the theory sid
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146Gordon H Hansonberg et al. (2008
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148Gordon H HansonThe expansion of
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150Gordon H Hansonshares and factor
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152Gordon H HansonGoldberg, Pinelop
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9Production Offshoring andLabor Mar
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Production Offshoring and Labor Mar
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172Pravin Krishna and Mine Zeynep S
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11Trade, Child Labor, and Schooling
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Trade, Child Labor, and Schooling i
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198Gordon H Hanson3.0%2.8%2.6%2.4%2
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200Gordon H HansonTable 12.2: Share
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202Gordon H HansonWho benefits from
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204Gordon H HansonAn older and larg
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206Gordon H HansonTo date, the lite
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208Gordon H Hansontion surplus was
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210Gordon H HansonSome evidence sug
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212Gordon H HansonBIBLIOGRAPHYAcost
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214Gordon H HansonMishra, Prachi 20
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216James Harrigan• China had been
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218James Harrigan2.2 Price and quan
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220James HarriganFigure 13.1a: Pric
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222James Harrigan4. CONCLUSIONThe e
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224Beata S Javorcikices, thus benef
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226Beata S Javorcikfor plants which
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228Beata S JavorcikAs the majority
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230Beata S Javorcik5. DOES FDI LEAD
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232Beata S Javorcikthough they do n
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234Beata S Javorcik7. FUTURE RESEAR
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Page 255 and 256: 238Chad P Bownthese theories has on
Page 257 and 258: 240Chad P Bownicy changes affect th
Page 259 and 260: 242Chad P Bownis, the policy-imposi
Page 261 and 262: 244Chad P Bownsignificant distortio
Page 263 and 264: 246Chad P Bownaccession period led
Page 265 and 266: 248Chad P Bown2002-03. 16 However,
Page 267 and 268: 250Chad P Bowntive adjustment impac
Page 270: PART CFACTORS THATAFFECT TRADE
Page 273 and 274: 256David Hummelsative advantage for
Page 275 and 276: 258David Hummelsprices shift demand
Page 277 and 278: 260David HummelsThe second form of
Page 279 and 280: 262David Hummelsdogenous to how pro
Page 282 and 283: 17The Duration of Trade Relationshi
Page 284 and 285: The Duration of Trade Relationships
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Page 310 and 311: 19Market Penetration Costs andInter
Page 312 and 313: Market Penetration Cost and Interna
Page 320 and 321: 20Taking Advantage of Trade:The rol
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Page 332 and 333: 21Credit Constraints and the Adjust
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Page 349 and 350: 332Miet Maertens and Jo Swinnenmeas
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338Miet Maertens and Jo Swinnenfirm
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340Miet Maertens and Jo SwinnenBIBL
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342Miet Maertens and Jo SwinnenRear
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23Notes on American Adjustment Poli
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Notes on American Adjustment Polici
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362Johan F M Swinnen and Kristine V
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This book summarizes the state of k
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